Rating agency Moody’s has downgraded 16 Spanish banks, based on rising concerns over the credit worthiness of the institutions and on the ability of the Spanish government to support them during the current crisis.

Long-term debt and deposit ratings have been downgraded by one to three notches. The decision has affected 16 banks, among which Banco Santander and BBVA, the country’s two largest institutions, and Santander UK Plc, UK domiciled subsidiary of Banco Santander.

“The Spanish economy has fallen back into recession in first quarter of 2012 and Moody’s does not expect conditions to improve during 2012,” the agency said in a note.

Spain’s banks exposure to toxic real estate assets has been another driver for the downgrade.

Spanish banks are also facing less cost-effective, volatile, and restricted access to wholesale funding markets. Occording to data from the European Central Bank (ECB), Spanish banks on average funded 46% of total assets with deposits at the end of 2011, a high level compared to other Western European banks.

“Spanish banks have increased their ECB borrowing by more than six times since June 2011, the highest level in absolute terms among euro area banking systems as of April 2012,” the agency said.